WASHINGTON — Treasury Secretary Janet L. Yellen defended the actions of the Biden administration and federal regulators to stabilize the United States financial system this week, saying the moves were aimed at preventing problems from spreading through the banking system.
Ms. Yellen, in a hearing before the Senate Finance Committee, also sought to reassure the public that America’s banks are “sound” and that their deposits are safe.
The comments were Ms. Yellen’s first since the Treasury secretary and other federal regulators moved to shore up the financial system and contain fallout from the collapse of Silicon Valley Bank. On Sunday, the Federal Reserve, the Treasury Department and the Federal Deposit Insurance Corporation announced that they would make sure that all depositors at Silicon Valley Bank and Signature Bank, which regulators also seized, were repaid in full.
“We wanted to make sure that the problems at Silicon Valley Bank and Signature Bank didn’t undermine confidence in the soundness of banks around the country,” Ms. Yellen said. “We wanted to make sure that there wasn’t contagion that could affect other banks and their depositors.”
Ms. Yellen played a central role in the rescue effort that was undertaken in the last week, ultimately declaring that Silicon Valley Bank posed a “systemic” threat to the economy. That determination opened the door to the Federal Reserve and the Federal Deposit Insurance Corporation guaranteeing the uninsured deposits at the failing banks.
On Thursday, Ms. Yellen explained that because of the nature of the run on Silicon Valley Bank, she and other regulators feared that the unease could spread and cause other banks to face similar outflows of cash.
Despite those actions, Ms. Yellen said that the United State was not taking a step in the direction of nationalizing the banking system. Although there have been suggestions that all of the nation’s deposits are effectively being insured — rather than those under $250,000 — the Treasury secretary made clear that any such guarantees would have to be approved by federal regulators and the Biden administration.
The collapse of the banks and the ensuing market turmoil have led to finger pointing over whether the a 2018 rollback of some of the financial regulations in the Dodd-Frank Act was responsible for the bank failures.
Republicans on the committee also previewed potential political attacks, arguing that Mr. Biden’s spending policies fueled inflation and created the need for the Federal Reserve to raise interest rates. That, they argued, destabilized Silicon Valley Bank by causing the value of its long-dated Treasury bonds and mortgage bonds to be eroded.
Ms. Yellen called for a re-examination of bank rules and supervision to “make sure they are appropriate to address the risks that banks face.” However, she suggested that no matter how strong bank capital and liquidity supervision is, a bank can be put in danger of failing if there’s an “overwhelming run” spurred by social media.